Killing Small Banks in Good Faith: Street Whispers

NEW YORK (TheStreet) -- The Consumer Finance Protection Bureau is doing consumers a solid with its redesigned mortgage disclosure forms, if it weren't for the small banks it will kill along the way.

For mortgage loan borrowers who have been confused by the Good Faith Estimate before their loan closes, the Bureau's proposal for a redesigned disclosure is quite an improvement.

Mortgage loan borrowers currently receive the Good Faith Estimate, which includes the loan amount, the term, the rate, points charged, origination fees, other fees for services including appraisal and survey, and charges for title insurance, document recording, etc. The borrower separately receives a Truth-In-Lending Disclosure Statement, which includes the total finance charge for the life of the loan -- if it is a fixed-rate loan -- and the "annual percentage rate," which is made up of the interest rate, plus all closing costs spread over the life of the loan.

The annual percentage rate is a very confusing item.

The CFPB's proposed Loan Estimate clearly spells out key features of the loan, including any prepayment penalty, balloon payment or negative amortization feature, right at the top. The form also has a much cleaner format, making it easy to read.

The new Loan Estimate includes all of the information in the Good Faith Estimate and the Truth-In-Lending disclosure, cutting two pages from the total. At closing, borrowers would receive a redesigned Closing Disclosure, which is much easier to read and understand than the current HUD Settlement Statement

CFPB director Richard Cordray said on July 9 that the "proposed redesign of the federal mortgage forms provides much-needed transparency in the mortgage market and gives consumers greater power over the exciting and daunting process of buying a home."

So what's not to like?

"The bureau is stitching together what is a veritable thicket of statutes and regulations," says Jerry Comizio -- the chair of the Global Banking practice of Paul Hastings, based in Washington, D.C. -- but "there is a certain paradox in them being given this mission and putting out a proposal that is 1,097 pages."

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